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Will Carbon and Shahry usher in a wave of buy now, pay later services in Africa?

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Affirm, Afterpay, Klarna, Quadpay. These are some of the big global players in the buy now, pay later (BNPL) movement. They allow shoppers to purchase products online and pay in installments with nominal or no fees, and have become more prominent due to how the pandemic accelerated e-commerce market growth around the world.

Credit card companies have filled in this gap for a long time. But the problem is credit cards rely on exorbitant fees, leading people to debt in the long run. While the pandemic left many jobless, it taught millennials and Gen Zers — a growing demographic with more than $200 billion in spending power — the hard way of sorting out their debt issues. In turn, a number of them have become debt-averse and increased their demand for better financing options. 

A 2020 poll carried out by Motley Fool surveyed 1,800+ people on why U.S. consumers use BNPL services. From the survey, 39% of the respondents said they used BNPL services to avoid paying credit card interest rates, while 16.3% said they don’t like to use credit cards and 14% said their credit cards were maxed out.

To millennials, there’s no incentive to own a credit card these days. A shift of preference to buy products on credit at the point-of-sale is on the rise; $680 billion will be spent by global consumers using online POS finance or BNPL over e-commerce channels by 2025.

Yet, as established players continue to have thousands of merchants and millions of users on their platforms, BNPL services are just picking up in Africa.

In a continent where debit cards (not credit) are prevalent, the upcoming players are primarily lending companies who have found a way to assess their customers’ credit risk via technology. Gathering data from partnerships with merchants, they use consumers’ shopping habits and purchasing power to drive their BNPL ambitions.

How these platforms assess credit risk

Last week, Nigerian digital bank Carbon introduced Carbon Zero, a product that lets customers purchase electronics and gadgets while paying in small installments at a 0% interest rate. However, before a purchase is made, a percentage of the total cost is paid upfront. After that, customers can pay the remaining price over six months. 

There are different reasons why such services hardly exist on the continent. For one, the country’s credit infrastructure is still a work in progress, and most of its citizens have limited purchasing power. So how does Carbon plan to assess risk? 

The company started in 2012 as a digital lender. But it has since grown to become one of the country’s few digital banks providing different financial services to its more than 659,000 customers. With extensive experience and a track record of providing loans to Nigerians (in 2020, its loan disbursement volume was $63 million), Carbon has found itself in pole position to enter the buy now, pay later market with Carbon Zero.

“We do not believe that a firm without a track record of lending can provide a similar service, except they have a significant amount of capital to burn. Carbon has been lending in Nigeria for nearly 10 years, so we have a lot of credit history of our customers, and we believe we can assess new customers very well,” Chijioke Dozie, the company’s CEO, told TechCrunch. 

Dozie says Carbon Zero hopes to be the embodiment of the promise made to its customers years ago to embed finance in their everyday purchase. But there’s a benchmark to who these customers are. According to the company, Carbon Zero can only be accessed by customers who earn at least ₦200,000 ($500) monthly, representing a small amount of the population.

The case of finding a market need and product-market fit was slightly different for Egyptian digital lending platform Shahry. In 2019, co-founders Sherif ElRakabawy and Mohamed Ewis, while running Yaoota — Egypt’s largest shopping engine and price comparison website — noticed that one of the most frequent requests they got from users was the option to buy products and pay for them later. Simultaneously, the Egyptian pound was experiencing devaluation against the dollar, thereby causing inflation.

The founders launched Shahry targeting the underbanked part of its young population to pay for products in installments, going head to head with the banks that offered similar services, albeit via credit cards.

“We’re currently the only buy now, pay later app in Egypt that offers a fully online service with no physical friction or paperwork from signing up to product home delivery,” the CEO ElRakabawy told TechCrunch.  

While Shahry’s model does not require a down payment, it does require that users apply for virtual credit through their mobile app, which they use to buy products from Arab e-commerce giant Souq. The company determines creditworthiness using algorithms and a credit risk review based on customer data. The company is also working on an AI model for fully automated instant decisions.

Partnering with merchants and raising capital to compete

Depending on the vertical, BNPL helps merchants drive sales, increase conversion rates and improve transaction sizes at decent percentages.

On how it makes money, Shahry takes interests and commission fees from merchants — a method Carbon Zero adopts. Via Souq, Shahry has Amazon as an online partner, and ElRakabawy says the company plans to onboard hundreds of brick and mortar, and online, merchants later this year.  

On the other hand, Carbon Zero launched with merchants that are top distributors of authentic electronics and gadgets in Nigeria. Although these merchants sell competing products, Dozie says Carbon doesn’t control the prices. The company is only concerned with financing the products as other necessities like product pricing, fulfilment and logistics is between the merchant and the customer.

“We have told merchants it’s in their best interest to provide the best pricing as we will not favour any merchant over the other. Customers can choose which Zero merchant they want to use, and they will vote with their wallet,” he said. 

To embark on a BNPL journey, a company must have a functioning credit system and a large war chest. This is why the likes of Affirm and Klarna have raised billions, and Afterpay millions, of dollars in investments. While Shahry and Carbon don’t have those amounts to burn, they will make do with what they have, as is usual with most African startups — case in point, despite raising just $650,000 in pre-seed investment last year, Shahry claims to have been experiencing double-digit month-on-month growth.

But ElRakabawy reckons that financing these transactions have put a strain on the business even though the company is yet to scratch the surface of what could be achieved in the Egyptian market.

“The market is huge and still mostly underserved,” he said. “The demand is so big that we’re currently only capped by the amount of loan capital we can disburse.” In the coming months, the company plans to close a second round of funding from new and existing investors to meet the growing demand for its service.

Carbon might be looking to do the same as the company gears up for a Series B in the foreseeable future. However, what is top of mind for Dozie is not fundraising; it is how to tailor the buy now, pay later service, which has become a global phenomenon, to a harsh market like Nigeria.

“We see a lot of potential in the Nigerian market for Carbon Zero. We do not believe we can blindly copy other BNPL players like Affirm or Klarna because they operate in markets that have an established offline and online retail market,” he said. “Carbon Zero will not only adapt to its environment to offer payment experience in the retail space but also in other areas where customers need to spread payments — in travel, education, and healthcare.”

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Flextock is a YC-backed e-commerce fulfillment provider for Africa and the Middle East

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When merchants launch their e-commerce businesses, they can easily manage the end-to-end operations in the early stages. But as they begin to grow, managing their own operations, from warehousing and logistics to delivery and cash collection, can become difficult. This can prevent them from scaling effectively despite having a steady inflow of demand.

Now, there’s a need to offload some of this workload. This is where e-commerce fulfillment services come in handy.

Today, Flextock, one such company providing this service to businesses and consumers in Egypt, is announcing that it is part of Y Combinator’s Winter 2021 batch. Founded by Mohamed Mossaad and Enas Siam in September 2020, the Egyptian company launched in stealth this January.

According to COO Siam, the founders noticed that as e-commerce activities in the Middle East and North African regions accelerated due to the pandemic, merchants were left overwhelmed with the volume of orders they received.

“We saw it as an opportunity to build a tech-enabled platform to be able to help anyone that wanted to grow their own independent brand or store,” she told TechCrunch. “We wanted them to focus on their products and marketing while leaving the supply chain and logistics bit to us, which we do through our end-to-end proprietary software.”

Mossaad, the company’s CEO, describes Flextock as a tech-enabled fulfillment provider. When merchants sign up to the platform, they send their products to one of the company’s fulfillment centers. Flextock takes the whole catalog and tags the products for tracking purposes. Then, integration is made between Flextock and any online store they use, be it Shopify, WooCommerce, Wix and Odoo, among others

As orders are made, Flextock packages and ships the products from the fulfillment center to the customers. Flextock doesn’t own any delivery vehicles, so to achieve this, the company partners with existing logistics companies in Egypt. This model has helped the startup to create a marketplace for different last-mile delivery companies in the country.

Image Credits: Flextock

There’s also a dashboard for these merchants to track each order, get more visibility into their shipping process and know how well their products sell.

Flextock makes money on a per-order basis. That means the merchants on the platform pay a flat fee that changes with respect to the volume of products moved.

Mossaad says that since the company beta launched in January with more than 20 businesses, it has been growing 50% week on week. It has also completed over 300,000 orders across 28 cities in the country.

According to the CEO, Flextock is the first end-to-end fulfillment service in Egypt. And in a market that will likely see more competition in the next couple of years, Mossaad thinks Flextock has the opportunity to become the market leader.

Behind this rationale is that the six-month-old startup is backed by Y Combinator and has also raised $850,000 which is just the first part of its million-dollar pre-seed round that will close sometime this year.

“We were able to very quickly get the acceptance of YC given the size of the opportunity we are focused on. We believe that commerce is expected to change in the Middle East and Africa, and Flextock is going to be at the forefront of powering this next generation of commerce,” he said.

The founders combine a wealth of corporate experience and a strong track record of scaling tech startups in the MENA region.

L-R: Mohamed Mossaad (CEO) and Enas Siam (COO)

Siam started her career managing supply operations at Nestle across the Middle East and North Africa. Later, she became the General Manager of Careem Bus, a mass-transit service and Uber subsidiary, where she helped build the product from scratch and grew it to 150,000 monthly rides in a year.

Mossaad, on the other hand, has worked on multiple turnarounds across different African countries during his time at Bain & Company. He joined Egyptian online food delivery platform, Elmenus, as Chief Strategy Officer. He helped scale the company’s revenues 5x in less than a year and was instrumental to its $8 million Series B round.

The CEO says Flextock has its sights on other African and Middle Eastern markets — specifically Saudi Arabia — and the plan is to provide its services to over 1 million businesses in these regions over the next decade.

“We are on a mission to enable more than 1 million merchants in Africa and the Middle East to sell online without carrying out the hassle of running their own operations. We are well-positioned to do that, and hopefully, we will be able to achieve that in a record time.”

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China’s cosmetics startup Yatsen to buy 35-year-old skincare brand Eve Lom

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In China’s cosmetics world, where foreign brands were historically revered, indigenous startups are increasingly winning over Gen-Z consumers with cheaper, more localized options. One of the rising stars is the direct-to-consumer brand Perfect Diary, which is owned by five-year-old startup Yatsen.

Yatsen impressed the capital market with a $617 million initial public offering on NYSE in November. Its flagship brand Perfect Diary consistently ranks among the top makeup brands by online sales next to giants like L’Oreal and Shiseido. Now the company is plotting another big move as it set out to buy Eve Lom, a 35-year-old skincare brand owned by British private equity firm, Manzanita Capital.

On Wednesday, Yatsen, named after the father of modern China, Sun Yat-sen, announced it has entered into a definitive agreement to acquire Eve Lom, which is known for its cleanser. The deal is expected to close within the next few weeks and Manzanita will retain a minority stake in the business and serve as a strategic partner.

The size of the deal wasn’t disclosed but Bloomberg reported in February that Manzanita was looking to sell Eve Lom for as much as $200 million.

Perfect Diary rose to prominence in China by partnering with influencers who reviewed the brand’s lipsticks, eyeshadow palettes, foundation and other products on Chinese social commerce platforms like Xiaohongshu. It took advantage of its vicinity to China’s abundant cosmetics and packaging suppliers, many of whom also work with top international brands. The strategies have allowed Perfect Diary to offer affordable prices without compromising quality, and earn it the moniker, “Xiaomi for cosmetics.”

Growth has skyrocketed at Yatsen since its founding. Its gross sales more than quadrupled to 3.5 billion yuan ($540 million) in 2019 from 2018, thanks to an effective e-commerce strategy. But losses also ballooned. The company recorded a net loss of 1.16 billion yuan ($170 million) in the nine months ended September 2020, compared to a net income of 29.1 million yuan in the year before.

Yatsen has been on the hunt for potential acquisitions to diversify its product portfolio, as it noted in its prospectus. Through the Eve Lom marriage, the company hopes to “enrich our global brand-building capabilities and product offerings,” said Jinfeng Huang, founder and CEO of Yatsen in the announcement.

Yatsen has already embarked on international expansion, landing in Southeast Asia first where it is selling on e-commerce sites like Shopee. It said in the prospectus that it plans on “selectively cooperating with local partners to accelerate our international expansion and localize our product offerings.” In the competitive and entrenched makeup world, Yatsen’s overseas expedition is definitely a curious one to watch.

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‘Flying taxi’ startup Volocopter picks up another $241M, says service is now two years out

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In a year where mass transit on airplanes, trains and buses has had lower traveler numbers in the wake of the Covid-19 pandemic, one of the startups hoping to pioneer a totally new approach to getting individuals from A to B — flying taxis — has raised some significant funding.

Volocopter, a startup out of southern Germany (Bruchsal, specifically) that has been building and testing electric VTOL (vertical take-off and landing) aircraft, has picked up €200 million (about $241 million) in a Series D round of funding. Alongside its aircraft, Volocopter has also been building a business case in which its vessels will be used in a taxi-style fleet in urban areas. CEO Florian Reuter tells us that live services are now two years out for the two vehicle models it has been developing.

“We are actually expecting to certify our VoloCity in around two years and start commercial air taxi operations right after,” he said. “Paris and Singapore are in pole position [as the first cities], where Paris wants to get have electric air taxis established for the 2024 Olympics. With our VoloDrone we expect first commercial flights even earlier than with our VoloCity.”

To date, Volocopter has shown off its craft in flights in Helsinki, Stuttgart, Dubai, and over Singapore’s Marina Bay. In addition to Europe and Asia, it also wants to launch services in the U.S..

For some context, this is basically on track with what the company had previously projected: in 2019 — when Volocopter raised an initial $55 million in funding for its Series C (finally closed out at €87 million, around $94 million) — the company said it was three years away from service.

This latest (oversubscribed) Series D includes investments from a mix of financial and strategic backers. Funds managed by BlackRock; global infrastructure company Atlantia S.p.A.; Avala Capital; automotive parts behemoth Continental AG; Japan’s NTT via its venture capital arm; Tokyo Century, a Japanese leasing company; multiple family offices are all new investors, among others. Volocopter also said that all of its existing investors — that list includes Geely, Daimler, DB Schenker, Intel Capital, btov Partners, Team Europe, and Klocke Holding and more — also contributed to the round.

If that sounds like a big list, it’s somewhat intentional, as the task of what Volocopter is complex and requires a wide ecosystem of other players, said Rene Griemens, the company’s CFO.

“Getting urban air mobility off the ground requires a full ecosystem that we are developing right now. Many of our strategic partners will support us on different aspects of the supply chain, scaling components, entering markets, improving operations amongst others. Most of them know certain aspects of our business model really well (eg. Japan Airlines for aviation, Atlantia for infrastructure),” he said. “Their investment is a reflection of their excitement about Volocopter as a leader in building the entire ecosystem of UAM, thereby giving credibility and comfort for purely financial investors.”

He added that many of these companies have a very “hands-on partnership” with Volocopter. “DB Schenker, for example, is rolling out leading-edge heavily-load electric logistics drones together with us around the globe.”

The company has now raised nearly $390 million. We’re asking for an updated valuation, but for some context, PitchBook data estimates its valuation now at $624 million.

Moonshots and sunsets

Founded in 2011, Volocopter has now been working on its idea — distinctive for its very wide circular design that sits where the rotor on a helicopter would be — for a whole decade, and in many regards it’s the classic idea of a moonshot in action.

It has yet to make any money, and the product that it’s building to do so is very groundbreaking — flying into completely unchartered territory, so to speak — and therefore ultimately untested.

It’s not the only one working on “flying taxi” concepts — there are other very well-capitalised companies like Lilum, Joby Aviation, Kitty Hawk and eHang.

However, all of these have faced various hurdles ranging from investor lawsuits to bankruptcies, accidents, mothballed projects and divestments (perhaps most notably, Joby scooped up Elevate last year as Uber stepped away from costly moonshots).

And most importantly, none of them are flying commercially yet. With Volocopter (as with the others), investors have taken a long-term bet here on a concept and a team it believes can deliver.

For now, the company says that technology is no longer the barrier, and neither it seems are regulators, who are, in the pandemic, more focused on considering new approaches to old problems to improve efficiency and acknowledge that we might have to do things a little differently from now on, in the wake of new demands from public health, and the public.

In the case of VTOL craft, the promise has always been that they could bypass a lot of the issues with street congestion in urban areas, and provide a more environmental alternative to gas-guzzling, present-day transportation modes.

The challenge, on the other hand, has been determining the safety both of completely new devices, and also of the traffic and other systems that they would operate under. With the idea being that ultimately these craft would be autonomous, that adds another complex twist.

Interestingly, regulators in different markets that might have been more skeptical of new concepts seem to be more open to considering them differently now with the pandemic at hand. This has played out in other arenas, too, such as the electric scooter market in the UK, which saw a bump in activity after regulators long skeptical gave them a provisional nod last year, citing the need for more individualized transportation options in a pandemic-hit country.

Volocopter’s model is based around transporting one person or small parties, so in a sense might be attractive here too.

“There aren’t any major hurdles anymore in terms of the technology as such,” said Retuer. “It is now all about execution. EASA has defined what is necessary to get electric air taxis certified to the highest safety level in aviation. We have the best technology in the market to certify to EASA’s high safety standards and will keep our heads down to finalize the few remaining steps to certification.”

In contrast, he said the other challenges that remain are those of any highly technical startup: “Our largest challenge right now is talent acquisition,” he said. “We are looking for the best talents worldwide and growing our team quickly now, so that we can accelerate on the technical and market development sides. Especially in the markets where we will open early routes, such as Paris, Singapore, China and Japan, we are going full speed in preparing everything necessary from digital infrastructure to landing sites, city approvals and more.”

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